Investing in a vacation rental in Costa Rica offers a range of attractive benefits—beautiful beaches, a warm climate year-round, and a growing tourism industry. Additionally, property prices in Costa Rica remain relatively affordable compared to North America, making it an appealing destination for real estate investors.

However, purchasing property in a foreign country is a different process compared to buying a home. Many investors overlook the important differences in local laws, taxes, and real estate practices. Without understanding these key factors, you risk making costly mistakes that could affect your investment’s success or even result in legal or financial complications.

In this post, we will explore the key differences in Costa Rican real estate laws, tax regulations, and market practices that many foreign investors overlook. By understanding these aspects, you will be better equipped to make informed, strategic decisions and avoid the common pitfalls that can turn a promising investment into a significant burden.

Why Costa Rica Still Draws Investors

Costa Rica remains a top choice for real estate investment, and for good reason. The country welcomed over 2.3 million tourists in 2023, with a strong and growing demand for vacation rentals in popular destinations such as Nosara, Tamarindo, and Uvita. Foreign investors are allowed to own titled property outright, and with the rise of remote work, many people are blending vacations with extended stays, increasing rental demand throughout the year.

However, the strength of the market can only work in your favor if you understand the details. A thriving market doesn’t guarantee success—it’s important to navigate the rules correctly to ensure your investment is truly profitable.

1. Land Ownership Isn't Always What It Seems

Costa Rica’s coastline is undoubtedly one of its most appealing features. With its pristine beaches, crystal-clear waters, and lush landscapes, it’s no wonder that so many investors are drawn to properties near the ocean. However, not all land along the coastline is available for purchase, and many buyers fail to fully understand the regulations surrounding beachside properties.

In Costa Rica, the first 200 meters from the high tide line are part of the Maritime Zone. This area is divided into two parts:

1. The first 50 meters is classified as public land, which means it cannot be privately owned by anyone—foreigner or Costa Rican.
2. The next 150 meters is what’s known as concession land, which can be leased from the government but is not owned outright.

This is where many foreign investors get confused. Here’s the critical detail:

• Foreigners cannot directly hold majority ownership of concession land. This means that even if you think you’re purchasing beachfront property, you may only be leasing the land for a set period—usually 20 years—with the option for renewal, though there are conditions attached.
• To legally own a property on concession land, you’ll need to set up a Costa Rican corporation, and in some cases, a local partner may be required to comply with the country’s legal structure.

Concession leases are renewable, but they come with their own set of rules, including environmental and development restrictions that can change over time. If you skip over these details and purchase concession land without a clear understanding, you might end up with a property that you don't fully control or, worse, one that is taken back by the government.

Properly researching the land type and understanding the legal complexities of ownership is crucial to avoid this costly mistake.

2. Tax Surprises That Catch Investors Off Guard

At first glance, Costa Rica's tax system may seem relatively straightforward, especially when compared to other countries. The property tax is quite low, set at 0.25% of the registered value, and that may seem like a great deal. However, this is just the surface, and many investors are caught off guard by the full range of taxes they’ll need to consider.

Here are some key tax aspects to be aware of:

• Luxury Tax: This tax applies to properties with construction values over CRC 137 million (about USD 260,000). The tax is progressive, meaning the higher the value of the property, the higher the rate you will pay annually. This is an important consideration for those looking to purchase higher-end properties near the coast.
• Capital Gains Tax: Costa Rica imposes a 15% capital gains tax on profits made from the sale of property. However, if the property is your primary residence, there may be an exemption. This tax applies only to the profit gained from the sale, so it’s important to keep records of the original purchase price and any improvements made to the property.
  
• Rental Income Tax: If you plan to rent out your property, you’ll be subject to a 15% tax on net rental income (after deducting legitimate expenses such as maintenance, management fees, and utilities). It's important to note that you’ll need to file tax returns locally to comply with Costa Rican laws, and failure to do so can result in fines, interest charges, and penalties.

Many first-time buyers are unaware of these tax requirements, especially when it comes to luxury property tax or rental income taxes. If you buy a property in Costa Rica and skip setting up the correct tax structures or miss filing your returns, the financial consequences can add up quickly. Working with a local accountant or tax advisor from the beginning will help you navigate the tax system, avoid penalties, and ensure your rental income is maximized legally.

3. Pricing Isn't Regulated

In North America and many other parts of the world, real estate pricing is often guided by a set of standards. Listings are regulated, and comparable sales data (comps) are publicly available, making it easier to assess whether a property is priced fairly. But that’s not the case in Costa Rica.

Costa Rica’s real estate market lacks a centralized listing system like the MLS (Multiple Listing Service), and as a result, you’ll notice several key differences:

• Prices may vary significantly for the same property: The same piece of property could be listed at multiple different prices across various websites, and those listings might not be updated frequently. This can be confusing and could lead to overpaying for a property if you're relying only on online listings.
• Listings can stay online after the property is sold: This is a common issue, especially in smaller towns or niche markets where inventory moves quickly. You could find a property that you love, only to discover it’s already been sold months ago.
• Buyer representation is rare: Unlike in North America, where agents typically represent the buyer’s interests, most agents in Costa Rica are paid by the seller. That means their loyalty is often to the person selling the property, not you as the buyer.

Without a centralized real estate database and a transparent system of price comparisons, foreign investors must be more proactive. You’ll need to do a lot of your own research, consult with multiple agents, and even visit the property in person to ensure you’re paying a fair price.

4. Property Management Isn’t One-Size-Fits-All

One of the appealing aspects of owning a vacation rental is the ability to generate income while you’re not there. But managing a property in a foreign country can be more complicated than it seems. Many investors assume that once they hand over the keys to a property manager, they’re done. But that’s not always the case.

Property management in Costa Rica can vary greatly from one company to another. Here’s what to consider when hiring a property manager:

• Communication and support: Does the property manager provide full guest communication and support, or will you be fielding questions and requests from afar?
• Cleaning and maintenance: Are cleaning services, landscaping, and maintenance included in the management fee, or do you need to arrange and pay for these separately?
• Transparency and reporting: Does the manager provide clear financial reports? Are you given access to booking calendars and revenue statements so you can track performance?

Many owners make the mistake of thinking that property management is a “set it and forget it” deal. But poor property management can quickly turn a lucrative rental into a financial burden. To avoid this, thoroughly vet property managers by asking for references, checking online reviews, and staying involved in the day-to-day operations.

5. What Smart Investors Do Differently

The most successful investors in Costa Rica don’t take shortcuts. They approach their investments with care, ensuring they have all the facts before they make a decision. Here are the steps that set them apart:

• Visit the property in both peak and off seasons: This gives you a better understanding of the location’s demand and what the rental market looks like throughout the year.
• Hire a local attorney: A qualified attorney will ensure the property’s title is clear, check zoning laws, and verify the land’s concession status (if applicable).
• Set up a Costa Rican corporation: This not only helps protect your assets but also ensures you comply with local regulations, especially for foreign ownership of land.
• Work with a tax advisor: Costa Rican taxes can be tricky, and a local advisor will ensure you’re following the law, maximizing deductions, and avoiding penalties.
• Vetting property managers: Ask for referrals, check reviews, and ensure the manager’s business practices align with your expectations. Don't assume that the process will be effortless once you hand over the keys.

Taking these steps may seem like extra work, but they help reduce risk and ensure that you’re making smart, long-term investment decisions.

Conclusion

Costa Rica can be an incredible destination for investing in vacation property, offering attractive returns and a high-quality lifestyle. However, success in this market doesn’t happen by chance. Just like any other real estate investment, it comes with its own set of rules and unique conditions. The biggest mistake you can make is assuming that the local rules and regulations don’t apply to you—or worse, failing to understand them entirely.

By taking the time to learn how land laws, taxes, and real estate systems operate in Costa Rica, you’re not just protecting your investment; you’re setting yourself up for long-term success. Understanding these local dynamics helps you avoid common pitfalls, mitigate risks, and position yourself for a steady income stream from one of the world’s most popular vacation destinations.

If you’re planning to invest in Costa Rican property, remember: don’t rush in without knowing the details. Do your homework, surround yourself with local experts, and approach the investment with a clear understanding of what’s involved. Buy smart, and you’ll be better equipped to enjoy the rewards of your investment, all while minimizing unnecessary stress and challenges.

If you're looking for practical tips and strategies to make the most of your vacation rental, feel free to check out Vacation Property Expert Network.

Whether you're just getting started or already have a property, we offer helpful resources, expert advice, and hands-on opportunities to guide you through every step of the process with confidence.